US budget surpluses are great news for the politicians, but for the global bond markets they pose a problem: are US treasuries a worthy benchmark any more? Issuance is down across all maturities: the three-year auction was eliminated last year, joining the seven-year, which went a few years before; the two- and 10-year auctions have been reduced in size, five-year auctions now happen on a quarterly rather than a monthly basis, and the 30-year is now a semi-annual event.
The $88 billion raised in the first quarter of 1999 was 35% down on the same period in 1997, when $135.5 billion was issued, and can only decrease if projected surpluses materialize.
So will that mean that treasuries will no longer maintain the depth and liquidity to stand as a reference for all other markets? If not, how will US and foreign borrowers be able to price their bonds?
One solution revealed itself last month: Fannie Mae's bullet benchmark notes. The mortgage agency began issuing from its bullet benchmark notes programme at the start of last year, and as of the end of September had $93.9